Salem Inc Is an Electing S Corporation with Current Year Operating

question 78

Multiple Choice

Salem Inc. is an electing S corporation with current year operating income of $300,000. The $300,000 does not include the amount it realized on the sale of a building for $330,000. The building was purchased in 2004 for $250,000 and $20,000 in straight-line depreciation had been taken on the building up to the date of its sale. How should Salem Inc. report these results to its shareholders?

• A)Operating income of $320,000 and Section 1231 gain of $80,000.
• B)Operating income of $400,000.
• C)Operating income of $304,000 and Section 1231 gain of $96,000.
• D)Operating income of $380,000 and unrecaptured Section 1250 gain of $20,000.
• E)Operating income of $300,000 and Section 1231 gain of $80,000 and unrecaptured Section 1250 gain of $20,000.

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Definitions:

Credit Sales

Transactions where goods or services are sold and payment is deferred to a future date, typically involving the issuance of an invoice.

COGS

COGS, or Cost of Goods Sold, represents the direct costs attributable to the production of the goods sold by a company, including material and labor costs.

Payables Turnover Rate

An efficiency ratio that measures how quickly a company pays off its suppliers, calculated as cost of goods sold divided by average accounts payable.

Accounts Payable Balance

The total amount of short-term liabilities or obligations a company owes to its creditors or suppliers.